Navigant Research Blog

In the aftermath of natural disasters like Hurricane Irma, there is much talk about how renewables are the ideal backfill to replace and modernize electric grids. Indeed, renewables like solar PV and wind, along with energy storage, grab headlines due to their falling costs, low lifetime carbon emissions, and general excitement about their deployment and future potential. Why, then, was the largest immediate post-storm addition a pair of 25 MW diesel-fired turbines installed by APR Energy?

Compactness Is Key

In addition to dispatchability and fast install (the plant was operational in 15 days), a key factor is energy density, defined here as daily energy output per acre of plant area. By Navigant Research numbers, combustion turbines like the ones installed by APR can produce as much as 6,200 MWh in a day using 1 acre of land. Compare that to solar PV, which is smaller by a factor of 9,200; based on National Renewable Energy Lab data, solar PV can be expected to produce about 0.67 MWh in an acre. The figure below indicates energy density by corresponding bubble size. The numbers vary by project, but the contrast is stark. Reciprocating generator sets (gensets) are compact, more distributed than the turbines, and a key part of the recovery (with the installation of 375 generators noted by this article). There are also headlines citing fast installation of renewables in microgrids, a clear trend of the future. Still, many of the high output, dense systems tend to be based around fossil fuels.

Energy density has two components. Power density (along the vertical axis) indicates the footprint needed for energy production in any instant of time. Combine that with the second component—capacity factor, along the horizonal axis—and fossil-fueled generation can look exceptionally appealing thanks to its availability nearly 24/7. A crucial advantage is the system’s dispatchability, the ability to provide power on demand.

Energy and Power Density by Technology: Daily Delivered Energy (MWh) in 1-Acre Footprint,
North America: 2017

Island nations are often constrained on space and need to fit generation among existing infrastructure—especially after a disaster. Many are among the most cramped on Earth, with Japan, Taiwan, the Philippines, Puerto Rico, and many Caribbean nations falling in the top one-sixth of all countries by population density. Though rooftops are available for solar PV, they can be small and may need retrofits. Offshore wind is quickly becoming more appealing, too (though if the grid goes down, it can’t provide onsite, distributed power).

Hybrid Systems Hold Promise

While diesel has the advantage of compactness and dispatchability, it is also expensive, challenging to transport long distances, and emits lots of greenhouse gases and other criteria pollutants like NOX and particulate matter. Natural gas holds many of the same advantages while avoiding many of the cons of diesel; where it is available, it often outperforms diesel. Dual-fuel turbines and gensets can be even more attractive—the Puerto Rico turbines produce power at 18.15 cents/kWh on diesel and less on natural gas when it’s available.

Still, natural gas faces similar hurdles to those noted for diesel (albeit lower ones). In many cases, the optimal system is hybridized—relying on a mix of fossil fuel and renewables. Despite all the buzz around solar, storage, and other renewables, reliance on only those technologies is often cost prohibitive. Hybrid microgrids based around diesel or heavy fuel oil generation can often see fuel savings of 10%-30% or more with the addition of new technologies like solar PV, wind, and storage.

Recent developments indicate that natural gas power generation is set to displace growing amounts of diesel in India. Though natural gas represents just 8% of installed capacity, demand is set to more than triple in the 2012-2030 timeframe according to Indian government forecasts. While some of the extra supply will come from increased domestic production, much will come from the doubling of liquefied natural gas (LNG) import capacity through 2025. At the same time, local distribution piping is expanding its reach—one customer at a time.

Natural gas is becoming more attractive for a number of reasons. One is cost; although diesel and coal are both relatively inexpensive and heavily relied on for power, the increased natural gas supplies are expected to bring prices down. The globalization of Asian LNG markets should also bring more stability to gas prices as the fuel moves away from oil indexation to more market-based pricing in Asia. Perhaps more importantly, natural gas has significantly lower emissions than diesel and coal when used for power generation—measured via particulate emissions and greenhouse gases. Alongside renewables, natural gas is seen as a key tool in fighting air pollution in India, which has half of the world’s 20 worst polluted cities.

Diesel generators are one key cause for pollution. Diesels are chosen because they are cheap, fuel is readily available, and they can be relied on to operate when India’s relatively poor grid goes down. (According to the World Economic Forum, India ranks just above the bottom third in quality of electricity supply, though this ranking is slowly improving.) Diesel gensets are ubiquitous in India, with an estimated 90 GW of diesel generators as of 2014 and about 4% of all consumed diesel going to gensets. There is a drive for renewables to displace much of this diesel use, and they are well-positioned to do so due to falling prices of technologies like PV. But where natural gas becomes available, it may often be the preferred choice, especially where reliable power is needed after the sun stops shining.

Proactive Outreach

Diesel remains the de facto choice as a reliable and established solution for residential, commercial, and industrial customers alike. Thus, for distributed natural gas to thrive in India, proactive outreach is required. These companies have recently made headlines with moves in distributed natural gas:

Indraprastha Gas Ltd., a gas supplier in Delhi, recently pitched gas gensets to housing complexes and factories as a cost-saving measure. The company says natural gas generation can offer power at 12 Rs/kWh ($0.18) compared to diesel 18 Rs/kWh ($0.27). The company is also in talks to provide electricity as a service.

Last year, fuel cell maker Bloom Energy announced a partnership with state-owned GAIL, India’s leading natural gas company. An initial project was announced in Bangalore, presumably with many more to come.

Dual-fuel gensets or conversions may also be an attractive option. Genset manufacturers like Caterpillar and Cummins offer gensets or retrofit kits that allow compression-ignited diesel generators to displace half or more of their fuel with natural gas. As natural gas distribution expands, this trend is expected to spread.

As these and other value chain players find new opportunities to supply power or generation equipment, more natural gas infrastructure may follow in India. In this under-electrified growing economy that represents 17% of the world’s population, massive opportunity beckons to the prepared.

The hype cycle on microgrids appears to have hit the crescendo level, causing at least one commentator to say “microgrids are the new kale.” This, of course, refers to the trendy vegetable alternative to lettuce and other leafy greens. Others, including many utilities, are still quite skeptical. They don’t see the rationale for third-party microgrids and argue that there are less costly alternatives to boosting resilience and energy security. Of course, many of the same utilities are busy trying to figure out what business model they should pursue so they can capture a portion of the microgrid value stream, whether from their regulated or unregulated business lines.

There is no doubt that significant barriers remain for microgrids to be considered a standard option for adding new capacity and other energy-related services across global markets. Nevertheless, there are certain application segments located within specific geographies where microgrids can make economic sense right now. Sometimes these deployments are dependent upon government incentives or other sources of supplemental funding. However, the number of microgrids being deployed today under a strict business case value proposition is growing.

Myself and others have often extolled the opportunities in the developing world. On paper, these markets look promising. High diesel prices and declining costs of solar PV (and now energy storage) make a microgrid that incorporates renewable energy a no-brainer.

As Justin Guay, climate officer at the Packard Foundation, told me the other day, some of the primary challenges to this market lie with subsidies embedded in the systems for fossil fuels such as diesel. He identifies this among several other issues that erect barriers to energy access in an article for the Huffington Post. “In many ways, enabling access to finance is job number one,” he writes. “Public policy can help address that by defining the rules of the road.” The International Energy Administration (IEA) has estimated that subsidies for fossil fuels globally totaled almost $500 billion in 2014.

Declining Oil Prices

Of course, declining oil prices have also hit this microgrid market. While in Alaska declining oil prices (ironically) threaten funding for climate-friendly renewable energy development for remote communities, in other parts of the world lower diesel fuel prices can pull the rug out from renewable energy economics. Diesel is the primary fuel for power generation in remote locations; prices hit 8-year lows in January of this year.

Yet there are bigger problems, corruption chief among them. Old boy diesel supply networks have created mafia-like arrangements lining the pockets of long-time locals that are threatened by new clean technologies. However, the tide may be turning in countries such as India, one of the most promising of all global markets for microgrids. Along with stripping away direct diesel subsidies, more subtle changes in financial rules may help this chaotic market reach its promise sooner rather than later.

India is an ideal microgrid market due to dense populations and the proliferation of cell phone technology. A series of recent rules creating a digital financial inclusion ecosystem is paving the way for creative business models to support small-scale energy supply entrepreneurs. Other changes in law allow for the shifting of subsidies once flowing to bad investments such as kerosene to instead be channeled into more productive activities, including sustainable energy microgrids. Getting big banks out of the way of mobile money creates a fiscal ecosystem that allows creative enterprises to finance energy access projects, stripping out inefficiency and lowering carbon emissions, all while providing vital healthcare and other services.